HSA investment advice

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jlm411
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Joined: Thu Sep 08, 2016 5:05 pm

HSA investment advice

Post by jlm411 » Mon Jun 10, 2019 8:08 am

I have about 30K balance in my HSA. HSA is with the Health Equity. I need help with the investment selection in my HSA account.
This HSA balance is a very small part of my assets so I am not worried about the asset allocation.

My primary goals for my HSA investment:
1. Take minimum risk
2. Preserve the principal

These are the choices in my HSA account, What do you recommend as the least riskiest investment?


Ticker Fund Name OER
VSIAX VANGUARD SMALL CAP VALUE INDEX ADMIRAL 0.07%
VBMPX VANGUARD TOTAL BOND MARKET IDX INSTLPLS 0.03%
VTTSX VANGUARD TARGET RETIREMENT 2060 INV 0.15%
VIGIX VANGUARD GROWTH INDEX INSTITUTIONAL 0.04%
VTWNX VANGUARD TARGET RETIREMENT 2020 INV 0.13%
VWIAX VANGUARD WELLESLEY INCOME ADMIRAL 0.16%
VFORX VANGUARD TARGET RETIREMENT 2040 INV 0.14%
VTINX VANGUARD TARGET RETIREMENT INCOME INV 0.12%
VEMPX VANGUARD EXTENDED MARKET INDEX INSTLPLUS 0.05%
VTPSX VANGUARD TOTAL INTL STOCK IDX INSTLPLS 0.07%
VTAPX VANGUARD SHRT-TERM INFL-PROT SEC IDX ADM 0.06%
VIIIX VANGUARD INSTITUTIONAL INDEX INSTL PL 0.02%
VEMIX VANGUARD EMERGING MKTS STOCK IDX INSTL 0.10%
VBIRX VANGUARD SHORT-TERM BOND INDEX ADM 0.07%
VTHRX VANGUARD TARGET RETIREMENT 2030 INV 0.14%
VMIAX VANGUARD MATERIALS INDEX ADMIRAL 0.10%
VMVAX VANGUARD MID-CAP VALUE INDEX ADMIRAL 0.07%
VSMAX VANGUARD SMALL CAP INDEX ADM 0.05%
VTABX VANGUARD TOTAL INTL BD IDX ADMIRAL 0.11%
VIPIX VANGUARD INFLATION-PROTECTED SECS I 0.07%
VFIFX VANGUARD TARGET RETIREMENT 2050 INV 0.15%
VGSNX VANGUARD REAL ESTATE INDEX INSTITUTIONAL 0.10%
VVIAX VANGUARD VALUE INDEX ADM 0.05%

Dottie57
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Re: HSA investment advice

Post by Dottie57 » Mon Jun 10, 2019 8:19 am

Hi OP,

I would put money into Vanguard short term bond or total bond for investment.

Also keep the deductible or max out of pocket in cash in case you have a bad year.

lakpr
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Re: HSA investment advice

Post by lakpr » Mon Jun 10, 2019 8:21 am

Preserving principal with HSA, respectfully, is the wrong move. Generally, you want to have the assets with maximum expected growth rate in vehicles where such growth is tax free. This is the reason why you should prefer equities in Roth accounts and fixed income instruments in traditional tax-deferred accounts.

HSA is a vehicle where the contributions are tax free and withdrawals are tax free, the only stipulation is that you should use those withdrawals for medical expenses. Surely you will have medical expenses in the future when you grow old, and you want a pot of money at that time where you can withdraw from without worrying about the tax impact. In short, use HSA as a stealth Roth IRA.

I would invest that $30k in a 3-fund portfolio in the ratio of 60:15:25 between VIIIX:VEMPX:VTPSX

fabdog
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Re: HSA investment advice

Post by fabdog » Mon Jun 10, 2019 8:23 am

Health Equity will charge .33%/yr as their fee for investments you make through their platform, in addition to the fees of the fund(s) you select.

I believe they require $2K to be kept in the cash portion of the account

Is there any reason you wouldn't consider these funds just a part of your AA and invest accordingly?

Mike

CRTR
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Re: HSA investment advice

Post by CRTR » Mon Jun 10, 2019 8:42 am

lakpr wrote:
Mon Jun 10, 2019 8:21 am
Preserving principal with HSA, respectfully, is the wrong move. Generally, you want to have the assets with maximum expected growth rate in vehicles where such growth is tax free. This is the reason why you should prefer equities in Roth accounts and fixed income instruments in traditional tax-deferred accounts.

HSA is a vehicle where the contributions are tax free and withdrawals are tax free, the only stipulation is that you should use those withdrawals for medical expenses. Surely you will have medical expenses in the future when you grow old, and you want a pot of money at that time where you can withdraw from without worrying about the tax impact. In short, use HSA as a stealth Roth IRA.
+1

From a tax-advantaged perspective, an HSA is the best account one has available. It is "triple tax advantaged": contributions are tax deductible, growth is tax free and all withdrawals are tax free. You can use it to reimburse medical expenses as you incur them or, even better, as some point in the future. I keep all my medical receipts in a folder and plan to reimburse myself when I'm in my 70s. It follows that the investments within an HSA should be the investments with the highest potential for growth: stock funds. I would not keep any bond or conservative investments in it unless I were within 10 years of starting to make withdrawals.

KingRiggs
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Location: Indiana

Re: HSA investment advice

Post by KingRiggs » Mon Jun 10, 2019 8:49 am

I am not required to keep any balance in the "checking" portion of my account, so it's all in the invested portion.

I DO plan to pay everything out of pocket and let it grow.

To safeguard against a medical calamity, I keep one year's maximum out-of-pocket amount in a short-term bond fund, all the rest in equities. I know it's a bit of mental accounting since I could cash-flow my out-of-pocket maximum, but it lets me sleep at night...

harmoniousmonk
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Re: HSA investment advice

Post by harmoniousmonk » Mon Jun 10, 2019 10:54 am

Roll into Fidelity and 100% FZROX

Yohanson
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Re: HSA investment advice

Post by Yohanson » Mon Jun 10, 2019 12:29 pm

Dottie57 wrote:
Mon Jun 10, 2019 8:19 am


Also keep the deductible or max out of pocket in cash in case you have a bad year.
I've never understood this advice. Why wouldn't you invest everything you can? You could always sell the investments if you needed to pay off medical bills but I have no intention of doing that until I'm well into retirement. I just pay out of pocket and keep the receipts on file for when I chose to take the reimbursement.

Pete3
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Re: HSA investment advice

Post by Pete3 » Mon Jun 10, 2019 2:03 pm

jlm411 wrote:
Mon Jun 10, 2019 8:08 am
I have about 30K balance in my HSA. HSA is with the Health Equity. I need help with the investment selection in my HSA account.
This HSA balance is a very small part of my assets so I am not worried about the asset allocation.

My primary goals for my HSA investment:
1. Take minimum risk
2. Preserve the principal

These are the choices in my HSA account, What do you recommend as the least riskiest investment?
Hi OP, my situation is almost identical to yours ($28k with Health Equity), I have $18k in VIIIX and the rest not invested, available for HSA use

Note I am not saying VIIIX is the least riskiest investment of the choices they offer, I think it is the best risk-adjusted choice.

If you really want the least risk then you should leave it un-invested.

Dottie57
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Re: HSA investment advice

Post by Dottie57 » Mon Jun 10, 2019 4:03 pm

Yohanson wrote:
Mon Jun 10, 2019 12:29 pm
Dottie57 wrote:
Mon Jun 10, 2019 8:19 am


Also keep the deductible or max out of pocket in cash in case you have a bad year.
I've never understood this advice. Why wouldn't you invest everything you can? You could always sell the investments if you needed to pay off medical bills but I have no intention of doing that until I'm well into retirement. I just pay out of pocket and keep the receipts on file for when I chose to take the reimbursement.
Your motive for having an HSA is strictly investing. Many, many people spend their HSA money each year. I want to have enough cash to meet deductibles - I hate selling at a loss. The rest is invested. My HSA has a requirement to have at least 2k in cash.

MotoTrojan
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Re: HSA investment advice

Post by MotoTrojan » Mon Jun 10, 2019 4:06 pm

lakpr wrote:
Mon Jun 10, 2019 8:21 am
Preserving principal with HSA, respectfully, is the wrong move. Generally, you want to have the assets with maximum expected growth rate in vehicles where such growth is tax free. This is the reason why you should prefer equities in Roth accounts and fixed income instruments in traditional tax-deferred accounts.

HSA is a vehicle where the contributions are tax free and withdrawals are tax free, the only stipulation is that you should use those withdrawals for medical expenses. Surely you will have medical expenses in the future when you grow old, and you want a pot of money at that time where you can withdraw from without worrying about the tax impact. In short, use HSA as a stealth Roth IRA.

I would invest that $30k in a 3-fund portfolio in the ratio of 60:15:25 between VIIIX:VEMPX:VTPSX
I agree with this but to keep things simple I would just use 100% equity personally, and pick a single fund (but I am far from withdrawing from anything, let alone HSA). Then incorporate it into your global AA>

tenkuky
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Re: HSA investment advice

Post by tenkuky » Mon Jun 10, 2019 4:53 pm

fabdog wrote:
Mon Jun 10, 2019 8:23 am
Health Equity will charge .33%/yr as their fee for investments you make through their platform, in addition to the fees of the fund(s) you select.

I believe they require $2K to be kept in the cash portion of the account

Is there any reason you wouldn't consider these funds just a part of your AA and invest accordingly?

Mike
This.
Think about moving the entire amount to Lively or Fidelity and invest in 3 fund there vs having fees and cash drag eat into your money.
That’s what I’ve done and will do yearly.
No HE for me.

investor4life
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Re: HSA investment advice

Post by investor4life » Mon Jun 10, 2019 5:38 pm

lakpr wrote:
Mon Jun 10, 2019 8:21 am
Preserving principal with HSA, respectfully, is the wrong move. Generally, you want to have the assets with maximum expected growth rate in vehicles where such growth is tax free. This is the reason why you should prefer equities in Roth accounts and fixed income instruments in traditional tax-deferred accounts.

HSA is a vehicle where the contributions are tax free and withdrawals are tax free, the only stipulation is that you should use those withdrawals for medical expenses. Surely you will have medical expenses in the future when you grow old, and you want a pot of money at that time where you can withdraw from without worrying about the tax impact. In short, use HSA as a stealth Roth IRA.

I would invest that $30k in a 3-fund portfolio in the ratio of 60:15:25 between VIIIX:VEMPX:VTPSX
I don’t quite follow why the growth vehicle should be tax-free if withdrawals are tax-free (assuming used for medical expenses).

Yohanson
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Re: HSA investment advice

Post by Yohanson » Mon Jun 10, 2019 7:43 pm

Dottie57 wrote:
Mon Jun 10, 2019 4:03 pm
Yohanson wrote:
Mon Jun 10, 2019 12:29 pm
Dottie57 wrote:
Mon Jun 10, 2019 8:19 am


Also keep the deductible or max out of pocket in cash in case you have a bad year.
I've never understood this advice. Why wouldn't you invest everything you can? You could always sell the investments if you needed to pay off medical bills but I have no intention of doing that until I'm well into retirement. I just pay out of pocket and keep the receipts on file for when I chose to take the reimbursement.
Your motive for having an HSA is strictly investing. Many, many people spend their HSA money each year. I want to have enough cash to meet deductibles - I hate selling at a loss. The rest is invested. My HSA has a requirement to have at least 2k in cash.
A
I'm required to keep $1K in cash. My deductible is around $4000 or $4500. I can easily handle that without touching the invested part of the HSA. I also spend next to nothing on healthcare so I've never even gotten close to hitting the maximum deductible amount. In fact, the amount that I can claim from the HSA right now is less than $200. The last time I got reimbursed from the HSA was in 2015. I discovered I could invest the majority of it in the market was the fall of 2016. I've been letting it ride ever since.

Blender
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Re: HSA investment advice

Post by Blender » Mon Jun 10, 2019 9:56 pm

jlm411 wrote:
Mon Jun 10, 2019 8:08 am
I have about 30K balance in my HSA. HSA is with the Health Equity. I need help with the investment selection in my HSA account.
This HSA balance is a very small part of my assets so I am not worried about the asset allocation.

My primary goals for my HSA investment:
1. Take minimum risk
2. Preserve the principal
Your goals are at odds with the tax advantages of the account type. If you really want lower risk and to preserve $30K of capital, I'd invest the HSA's $30K in VIIIX, then in another account (preferably tax-advantaged TIRA/401K/etc.) I'd swap $30K of a stock market fund with $30K of you favorite bond fund. You're still netting $30K into bonds but you're doing it into the more appropriate tax haven.

invest4
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Re: HSA investment advice

Post by invest4 » Tue Jun 11, 2019 7:31 pm

tenkuky wrote:
Mon Jun 10, 2019 4:53 pm
This.
Think about moving the entire amount to Lively or Fidelity and invest in 3 fund there vs having fees and cash drag eat into your money.
That’s what I’ve done and will do yearly.
No HE for me.
+1

Recently opened an HSA with Fidelity. Transfers are a bit annoying, but will no longer accept the paltry offerings and various fees of the current crop.

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grabiner
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Re: HSA investment advice

Post by grabiner » Tue Jun 11, 2019 8:48 pm

If you are investing the HSA for current medical expenses, then preserving principal is appropriate, and you should stick to lower-risk funds.

But if you are investing the HSA, or part of it, for medical expenses in retirement, then you should treat it as part of your IRA, and invest it accordingly. Since it is a small account, holding just one fund there for simplicity makes some sense. (My own HSA is entirely in an ETF which is only suitable for a small part of a portfolio.)
Wiki David Grabiner

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willthrill81
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Re: HSA investment advice

Post by willthrill81 » Tue Jun 11, 2019 9:02 pm

CRTR wrote:
Mon Jun 10, 2019 8:42 am
lakpr wrote:
Mon Jun 10, 2019 8:21 am
Preserving principal with HSA, respectfully, is the wrong move. Generally, you want to have the assets with maximum expected growth rate in vehicles where such growth is tax free. This is the reason why you should prefer equities in Roth accounts and fixed income instruments in traditional tax-deferred accounts.

HSA is a vehicle where the contributions are tax free and withdrawals are tax free, the only stipulation is that you should use those withdrawals for medical expenses. Surely you will have medical expenses in the future when you grow old, and you want a pot of money at that time where you can withdraw from without worrying about the tax impact. In short, use HSA as a stealth Roth IRA.
+1

From a tax-advantaged perspective, an HSA is the best account one has available. It is "triple tax advantaged": contributions are tax deductible, growth is tax free and all withdrawals are tax free. You can use it to reimburse medical expenses as you incur them or, even better, as some point in the future. I keep all my medical receipts in a folder and plan to reimburse myself when I'm in my 70s. It follows that the investments within an HSA should be the investments with the highest potential for growth: stock funds. I would not keep any bond or conservative investments in it unless I were within 10 years of starting to make withdrawals.
:thumbsup

Unless someone is too cash strapped to pay for medical expenses out of pocket and retain the receipts for later, then it makes sense to be very aggressive in an HSA. Put fixed income investments in tax-deferred accounts like a 401k or traditional IRA.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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grabiner
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Re: HSA investment advice

Post by grabiner » Tue Jun 11, 2019 9:39 pm

willthrill81 wrote:
Tue Jun 11, 2019 9:02 pm
Unless someone is too cash strapped to pay for medical expenses out of pocket and retain the receipts for later, then it makes sense to be very aggressive in an HSA. Put fixed income investments in tax-deferred accounts like a 401k or traditional IRA.
You don't need to be cash-strapped to want to pay medical costs from the HSA. If you aren't maxing out your retirement accounts, it's better to pay for medical expenses from the HSA as you incur them, and then invest the money you didn't need to spend on the medical expenses in a 401(k) or IRA. If you remove money tax-free from the HSA and put an equal amount tax-free in a Roth IRA, you have gained the ability to spend the growth on that money tax-free on anything in retirement. If you put the money plus the tax savings in a 401(k), you gain a similar benefit, since the tax on withdrawal is offset by the larger contribution.
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willthrill81
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Re: HSA investment advice

Post by willthrill81 » Tue Jun 11, 2019 9:41 pm

grabiner wrote:
Tue Jun 11, 2019 9:39 pm
willthrill81 wrote:
Tue Jun 11, 2019 9:02 pm
Unless someone is too cash strapped to pay for medical expenses out of pocket and retain the receipts for later, then it makes sense to be very aggressive in an HSA. Put fixed income investments in tax-deferred accounts like a 401k or traditional IRA.
You don't need to be cash-strapped to want to pay medical costs from the HSA. If you aren't maxing out your retirement accounts, it's better to pay for medical expenses from the HSA as you incur them, and then invest the money you didn't need to spend on the medical expenses in a 401(k) or IRA. If you remove money tax-free from the HSA and put an equal amount tax-free in a Roth IRA, you have gained the ability to spend the growth on that money tax-free on anything in retirement. If you put the money plus the tax savings in a 401(k), you gain a similar benefit, since the tax on withdrawal is offset by the larger contribution.
Good point.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

NewbieBogle007
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Re: HSA investment advice

Post by NewbieBogle007 » Fri Jun 14, 2019 11:02 pm

Since HSA is extremely tax-advantaged, why fill it with stock funds instead of bonds?

NewbieBogle007
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Re: HSA investment advice

Post by NewbieBogle007 » Sat Jun 15, 2019 12:11 pm

Blender wrote:
Mon Jun 10, 2019 9:56 pm
jlm411 wrote:
Mon Jun 10, 2019 8:08 am
I have about 30K balance in my HSA. HSA is with the Health Equity. I need help with the investment selection in my HSA account.
This HSA balance is a very small part of my assets so I am not worried about the asset allocation.

My primary goals for my HSA investment:
1. Take minimum risk
2. Preserve the principal
Your goals are at odds with the tax advantages of the account type. If you really want lower risk and to preserve $30K of capital, I'd invest the HSA's $30K in VIIIX, then in another account (preferably tax-advantaged TIRA/401K/etc.) I'd swap $30K of a stock market fund with $30K of you favorite bond fund. You're still netting $30K into bonds but you're doing it into the more appropriate tax haven.

Please explain -- why not just put the bonds in the HSA?

lakpr
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Re: HSA investment advice

Post by lakpr » Sat Jun 15, 2019 1:21 pm

NewbieBogle007 wrote:
Sat Jun 15, 2019 12:11 pm
Please explain -- why not just put the bonds in the HSA?
Blender already answered that question in the text you quoted. HSA is triple tax advantaged: contributions tax free, growth tax free, withdrawals tax free, and technically payroll tax free (this last advantage kicks into place only if you are earning less than $130k though). The only stipulation is that the distributions should be for medical expenses, so just keep all medical receipts you incur in your lifetime, and reimburse yourself some thirty years later in retirement.

If an investment vehicle says the growth will be tax free, you should put those asset classes that have the highest growth in that vehicle. Ergo, equities in HSA and Roth IRAs. If an investment vehicle says contributions are not taxed but the withdrawals are, you should put those asset classes that have the slowest growth in that vehicle, so the tax man's cut is minimized. Ergo, bonds in 401k/403b accounts.

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willthrill81
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Re: HSA investment advice

Post by willthrill81 » Sat Jun 15, 2019 2:51 pm

NewbieBogle007 wrote:
Fri Jun 14, 2019 11:02 pm
Since HSA is extremely tax-advantaged, why fill it with stock funds instead of bonds?
Because stocks are likely to significantly outperform bonds over the long-term. When it comes to paying for qualified medical expenses, an HSA is like a Roth account in that withdrawals are not taxed. Considering that retirees today are expected to pay about $250k for healthcare during their retirement, most want to maximize the funds they'll have available for that purpose.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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JonnyDVM
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Re: HSA investment advice

Post by JonnyDVM » Sat Jun 15, 2019 3:01 pm

harmoniousmonk wrote:
Mon Jun 10, 2019 10:54 am
Roll into Fidelity and 100% FZROX
This exactly. No fees. I have half in FZROX and half in a microcap fund. Best to take advantage of what is currently tax free growth imo.
Sometimes the questions are complicated and the answers are simple. -Dr. Seuss

togb
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Re: HSA investment advice

Post by togb » Sun Jun 16, 2019 5:36 pm

I'm very close to retiring (so MUCH older than OP) and I max out my HSA and it's 100% equities. Like has been mentioned this is the only triple tax advantaged option, so I want to leverage it. I used to leave one year's deductible as a hedge against a major expense that I could not absorb in the budget. Then I moved to having just 1000 in cash "just in case"-- because my EF had been tapped pretty hard for some unexpected expenses. Now that the EF has been restored, HSA funds will all be invested. Mine is invested in VFIAX (Vanguard 500 Index Admiral Shares) and VDAIX (Vanguard Dividend Appreciation Index).

I don't need this money any time soon. I'm still working and I have an EF. I want it to double, then double again. So 100% equities for me.

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